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Chapter 24 Title and Risk of Loss

Twomey  Jennings Anderson’s Business Law and the Legal Environment , Comprehensive 20e Anderson’s Business Law and the Legal Environment , Standard 20e Business Law: Principles for Today’s Commercial Environment 2e. Chapter 24 Title and Risk of Loss. Types of Potential Problems.

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Chapter 24 Title and Risk of Loss

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  1. Twomey  JenningsAnderson’s Business Law and the Legal Environment, Comprehensive 20eAnderson’s Business Law and the Legal Environment, Standard 20eBusiness Law: Principles for Today’s Commercial Environment 2e Chapter 24 Title and Risk ofLoss

  2. Types of Potential Problems • Damage to Goods: What if neither Buyer nor Seller is responsible? • What liability does a Carrier have? • Creditors’ Claims or Seizure of Goods. • Insurable Interest.

  3. Determining Rights: Identification of Goods • Existing Goods: physically present and owned by Seller at the time of contract. • When Seller or Buyer selects goods, they are “identified.” • Future Goods: do not exist or not owned by seller at the time of contract. • Fungible Goods: indistinguishable. • Identification Gives Buyer an Insurable Interest.

  4. Determining Rights: Document of Title • Document of Title: facilitates transfer of ownership without actually moving the goods. • A warehouser stores the goods of others for compensation and has the rights and duties of a bailee in an ordinary mutual benefit bailment.

  5. Determining Rights: Document of Title • Warehouse receipt given to the depositor (bailor) of the goods. • Bill of Lading: carrier accepts goods for shipment. • Now includes electronic documents of title.

  6. Passage of Title in Bailments • Generally, a seller can only sell what he owns. • Stolen Property: finder of stolen property (or a thief) cannot pass good title to a third party, even if the buyer purchased in good faith. • Estoppel. • Voidable Title.

  7. Delivery and Shipment Terms • Unless otherwise agreed, the Seller is only required to make shipment to the Buyer, i.e., place the goods in a carrier’s possession. • FOB Place of Shipment. • FOB Place of Destination. • FAS. • CF and CIF. • COD.

  8. Passage of Title in Shipment Contracts • FOB Place of Shipment Contract. • Title passes from S B when S places goods with carrier. • FOB Place of Destination Contract. • Title passes from S B when goods are tendered to the Buyer.

  9. Determining Rights: Risk of Loss • ROL determines who must pay if the goods are damaged or destroyed. • Non-Shipment Contracts. • Merchant Seller: ROL passes from S B upon B’s actual receipt of goods. • Non-Merchant Seller: ROL passes from S B upon tender of goods.

  10. Determining Rights: Risk of Loss • Shipment to Buyer: ROL passes from S B when tendered to carrier for shipment. • Contract for Delivery: ROL passes from S B when goods tendered at destination by carrier.

  11. Determining Rights: Damage or Destruction of Goods • Identified Goods Before ROL passes. • If total loss, contract is cancelled by law. • If partial loss, B has option to accept or reject. • Identified Goods After ROL passes. • Buyer’s loss (insurable interest). • Un-Identified Goods. • No ROL to Buyer, Seller’s loss.

  12. Risk of Loss in Shipment Contracts • Rights of Common Carriers. • Security lien interest on goods that it transports. • Right to compensation per agreement. • Duties of Common Carriers. • Deliver the goods as agreed.

  13. Risk of Loss in Shipment Contracts • A common carrier is absolutely liable for loss or damage to the goods. • Exceptions: • Loss was caused solely by an act of God, • Act of a public enemy, • Act of a public authority, • Act of the shipper, or • Inherent nature of the goods.

  14. Risk of Loss in Shipment Contracts • Seller is Liable for Damages from Delay. • Limitation of Carrier Liability. • Unless prohibited by law, carriers can contractually limit their liability. • Example: Airbills limit liability to $100, unless insurance is purchased. • If Seller ships non-conforming goods and Buyer reject, ROL stays with Seller.

  15. Damage / Destruction of Goods • Damage to Identified Goods before Risk of Loss Passes: Depends on facts. • Damage to Identified Goods after the Risk of Loss Passes: Buyer sustains loss. • Damage to Unidentified Goods: no risk to buyer. • Effect of Seller’s Breach in ROL.

  16. Determining Rights: Special Situations • Returnable Goods Transactions: Sale on Approval, Sale or Return. • Consignments and Factors: A factor is a special type of bailee who has possession of someone else’s property for the purpose of selling it. • This arrangement is commonly called selling on consignment, and the owner is called a consignor. • The factor, or consignee, receives a commission on the sale.

  17. Determining Rights: Special Situations • Self-Service. • Auction Sales.

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